Analysts recommend buying Nike on coronavirus weakness: 'Multi-year buying opportunity'

Analysts on Wall Street recommend buying the recent dip in Nike’s stock, which is getting hit on worries about the impact of the coronavirus epidemic.

UBS upgraded shares of Nike to buy from neutral and JPMorgan added the stock to its “analyst focus list” on Monday, sending shares of the athletic apparel company up nearly 2% in premarket trading.

“We see the recent pullback as a multi-year buying opportunity,” JPMorgan retail analyst Matthew Boss said in a note to clients.

Shares of Nike are down nearly 8% in the past two weeks as investors worry about the impact the Chinese coronavirus could have on the shoe giant’s Asia results. Nike relies on Greater China for about 16% of its revenues and nearly 30% of its sourcing for its apparel and footwear. Plus, an overall slowdown in global growth would disrupt the world’s largest shoe retailer’s business.

JPMorgan said Nike’s recent weakness has brought the stocks price-earnings to growth ratio, commonly called the PEG ratio, to 1.5x, below the average 1.8x, meaning the stock is undervalued right now. UBS echoed this point when it said Nike’s price-to-earnings ratio should be 37x, not 32x, which is its current level.

“We now think the market will pay a much higher P/E for NKE as it realizes how Nike’s business model changes will make the company worth much more long-term,” UBS analyst Jay Sole said in a note to clients. UBS raised its price target on Nike to $136 per share from $103 per share, about 40% upside from Friday’s closing price of $96.30 per share.

Boss also said Nike’s new CEO John Donahoe is expected to focus on business “acceleration” at the company’s investor meeting this week, which should boost sentiment.

The firm said the primary focus will be “on the digital/DTC front and firm commitment to NKE’s long-term financial model of high-single-digit revenue growth and mid-teens EPS annual expansion.”

In UBS’s downside scenario for Nike, “China slows to a low-teens growth rate and the Wuhan Coronavirus negatively impacts sales,” said Sole.

JPMorgan has an overweight rating on Nike and a $111 per share price target on the stock.

— with reporting from CNBC’s Michael Bloom.